Consider the following data related to the financial performance of Royal Company:

Between 2015 and 2018, income increased by 63 percent, showing a significant increase in income each year. In light of this performance, the board of directors has awarded large bonuses to senior executives. However, the stock price has fallen from $73 per share in 2015 to $56 per share at the end of 2018.
Required
a. Calculate ROI for each year. To simplify the calculation, assume that there is no interest expense and there are no noninterest-bearing current liabilities (thus, net income equals NOPAT and total assets are a reasonable measure of investment).
b. Explain why the stock price has dropped and why rewarding managers based on increases in profit can lead to overinvestment.
c. Calculate economic value added for 2015 to 2018, using a cost of capital (required return) of
9.5 percent. Does performance measured in terms of EVA help explain the decline in stock price?

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2015 2016 2017 2018 000s Net income % change in income Total assets $ 3,750 $ 4,313 15% $ 5,088 $ 6,105 20% -0- 18% $87,500 $47,925 $37,500 $63,750